New Book: Political Capitalism By Dr. Randall Holcombe

There is a growing interest in the way that public policy appears to favor the economic and political elite. This favoritism is referred to as cronyism, crony capitalism, or corporatism, among other terms. The Occupy Wall Street movement is an example. In their language, government policy favors the 1% over the 99%. But the idea is much older. Karl Marx referred to a class conflict between the bourgeoisie and the proletariat, and in the twentieth century social scientists cast this as a division between the elite and the masses. The concept of political capitalism refers to a system of political economy in which the political and economic elite cooperate for their mutual benefit.

While the symptoms of political capitalism have been widely recognized, its causes have not been clearly understood. Critics often point toward corrupt and unethical political leadership, or apathetic and uninformed citizens. If we just had better people running the system, and more responsible citizens monitoring it, that line of reasoning goes, we could overcome those problems. My book, Political Capitalism, combines the results of decades of social science research in a number of largely unconnected areas to develop a theory of political capitalism.

While there is much to be said about the subject (that’s why I wrote a book!), one important factor to recognize is that public policy is always going to be designed by an elite few. Millions of people cannot work together to design policy, so in a democracy they elect those who oversee the policy process. But democracy is not an effective way for the masses to control the actions of the political elite. Voters tend to be uninformed, and rationally so, because no voter’s single vote will have an impact on an election outcome.

Even if voters wanted to be informed, they could never acquire enough information to really understand the design of public policy. Just as a typical citizen does not know as much about auto repair as an auto mechanic, and does not know as much about medical issues as a doctor, that citizen also cannot understand as much about the process by which public policy is made as do the political elite who specialize in it. The result is that public policy is designed by the political elite, who specialize in its design, and democratic oversight by the masses has little effect on the public policy designed by the political elite.

One of the factors that has increased the political elite’s ability to influence public policy for their benefit is the demand by citizens that government do something to address the cronyism they perceive. In so doing, public outcries for more government oversight give the political elite more power, which they often use to benefit themselves. A better approach—which was built into the American Constitution—is to, first, give the government only limited and enumerated powers, and second, to design a system of checks and balances in which different groups of elites have the ability to control abuses of power by others.

Frequent demands that the government should do something (about so many things!) are too often based on wishful thinking—the thought that if government is given the power to act, it will do what the critics want. But giving the government power to do something too often means giving the elite more power to use the system for their benefit. I don’t claim that my book has all the answers; but problems cannot be effectively addressed without understanding their causes. My book explains why cronyism and favoritism toward special interests has become increasingly common.

Dr. Randall Holcombe is the DeVoe Moore Professor of Economics at Florida State University.

The featured image is from Cambridge University Press. Click here to learn more about the book.